A default could be catastrophic, causing “irreparable harm to the US economy, the livelihoods of all Americans and global financial stability,” Treasury Secretary Janet Yellen has warned.
Yellen on Friday told CNN’s Christiane Amanpour that the impacts would be felt by every American.
“If that happened, our borrowing costs would increase and every American would see that their borrowing costs would increase as well,” Yellen said. “On top of that, a failure to make payments that are due, whether it’s the bondholders or to Social Security recipients or to our military, would undoubtedly cause a recession in the US economy and could cause a global financial crisis.”
She added: “It would certainly undermine the role of the dollar as a reserve currency that is used in transactions all over the world. And Americans — many people — would lose their jobs and certainly their borrowing costs would rise.”
Dire warnings of debt ceiling trouble aren’t new. Federal lawmakers have reached agreements in the past, and this Congress has some time — until at least early June, according to Yellen’s public estimates — to reach an agreement on whether to raise or suspend the debt limit.
Many economists say they expect an agreement will be reached. However, given the current “extremely fractious political environment,” it could be a long process that would contribute to “flare-ups” in financial market volatility, Moody’s Investors Service said in a note Thursday.